The phrase,'Unsound Transit', was coined by the Wall Street Journal to describe Seattle where,"Light Rail Madness eats billions that could otherwise be devoted to truly efficient transportation technologies." The Puget Sound's traffic congestion is a growing cancer on the region's prosperity. This website, captures news and expert opinion about ways to address the crisis. This is not a blog, but a knowledge base, which collects the best articles and presents them in a searchable format. My goal is to arm residents with knowledge so they can champion fact-based, rather than emotional, solutions.

Transportation

Tuesday, October 15, 1996

October 15, 1996Dear Reader:This study of the benefits and costs of the Regional Transit Authority's November 1996ballot proposition began in August of this year. We relied upon the data that wasavailable at that time from RTA regarding the project's costs and their estimate of itsbenefits. The dollar value of the RTA's benefits were presented in a report entitled"Appendix C: Benefits, System Use and Transportation Impacts of Sound Move". Mostof our analysis relied upon that appendix and its supporting documentation.

When the RTA learned that we were conducting a benefit-cost analysis of the proposed system plan, they commissioned a similar analysis by Porter and Associates. Porter had developed the RTA's financial model and was familiar with the plan and its projected capital and operating costs. The RTA released the Porter report yesterday.

While we have not had opportunity to review it carefully, the Porter study and oursappear agree on some important points. Both stress that results of benefit-cost analysisshould serve as an aid to decision-making that voters should consider with other factors. Both reports use a similar analytic approach of discounting future benefits and costs todetermine their value today and both calculate an internal rate of return on the public'sinvestment in the system. However, the two studies reach very different conclusionsabout the cost effectiveness of the proposal. Porter concludes that the RTA plan willgenerate a positive return on investment of 7.4% and generate net benefits of $4 billion. Our analysis, on the other hand, shows a negative return on investment of 4.2% and anegative net present value of $2.5 billion.Several key assumptions explain most of the difference in the two results:

* The Porter analysis has increased the RTA's estimates of the travel benefits inAppendix C by 58%. In Appendix C , the mid-point estimate of benefits in 2010excluding construction is $209 million. Porter estimates those benefits at $331 million. Most of this increase is due to Porter's belief that the earlier study used the wrong "base case scenario" from which to measure the benefits of the RTA plan.

* The Porter analysis assumes that the operating costs of the system will remain constant in real terms while the ridership and benefits grow over time.

Benefit -cost Analysis of RTA PlanExecutive SummaryBackgroundThis study evaluates the benefits and costs of the proposed $3.9 billion transitsystem that residents in the Puget Sound region will vote on in November1996. The study was sponsored by the Washington Research Council—a non-profit, non-partisan, research institute. The analysis was conducted byECONorthwest, an economic consulting firm that specializes in the applicationof benefit-cost analysis to multi-modal transportation investment decisions.Results of AnalysisThe RTA system plan is not a cost-effective investment based on this report’s evaluation of the likely changes in transportation performance. Our analysis indicates that the costs of the RTA plan exceed its transportation benefits by $2.5 billion. The annualized cost per new transit rider is $13,028 and thereturn on the public’s investment is minus 4.2% per year. Using the RTA’s assumptions of the benefits, the plan’s costs still exceed its benefits by nearly $1 billion. In all of our analysis, we use the RTA’s assumptions about the cost of building and operating the proposed transit system.Evaluation of Transportation Benefits and Costs of the RTA over Thirty YearsECONorthwest RTA AssumptionsAssumptionsBenefits Minus ($2.5) ($1.0)Costs (billions)Rate of Return (4.2%) 1.1%Annualized Cost $13,028 $9,314per New TransitRiderAssumptions 2010 benefits as estimated by RTA andECONorthwest. Discount rate: 4%;Benefit growth rate: 0%; Maintenance cost growth rate: 1%; RTA’s stated estimates of capital and operating costs;

The analysis tested the degree to which changing key assumptions varies theresult. The value of time and a benefit multiplier used to account for potential changes in the RTA’s performance relative to the base case had the largesteffect. Within a reasonable range of these values no one parameter changedthe net benefits of the RTA plan by more than 16% of our point estimate ofminus $2.5 billion.

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As a transportation improvement the RTA plan doesn’t meet basic investmentcriteria of having benefits which exceed its costs. Our report considered otherpotential effects of the plan such as improvements in land-use and air qualityand found the RTAis not likely to generate measureable benefits in theseareas. There are some non-transportation benefits which may lead voters tosupport the measure anyway. Investments in rail are popular in other citieseven when they provide limited transportation benefits. It appears that otherareas like the image rail projects about a region’s willingness to providealternatives to the automobile even though relatively few people actually useit. Rail systems also convey an image about being a “big league” city that mayhelp in the marketing of a region. The voters must decide whether these non-transportation benefits are worth the cost of the RTA.ReviewThis analysis was conducted by ECONorthwest, an economic consulting firmthat has done numerous projects for the state and federal government on theapplication of benefit-cost analyis to transportation investments and policies.The report was written by Daniel Malarkey; Terry Moore, David Reinke andRandy Pozdena reviewed early drafts and suggested many useful revisions.Early versions of the report were given to the RTA staff for their commentsand any corrections. While the RTA staff do not endorse this paper’sconclusions, they have had an opportunity to raise issues and pose questions tobetter reflect the work they did putting together the current plan. This studywas also reviewed by a panel of outside transportation experts. They include:Paul Courant, Chair, Economics Department, University of MichiganJose Gomez-Ibanez, Derek Bok Professor of Urban Policy and Planning, Graduate School of Design and John F. Kennedy School of Government, Harvard UniversityJohn Kain, Visiting Professor, University of Texas at Dallas and Henry Lee Professor of Economics and Professor of Afro-American Studies, HarvardUniversitySteve Fitzroy , Consultant and Former Director of Research and Forecasting for the Puget Sound Regional CouncilAnthony Rufolo, Professor of Urban Studies and Planning, Portland State UniversityThese reviewers have signed on to the following statement:“We have reviewed the analysis conducted by ECONorthwest of the RegionalTransit Authority’s proposed system plan. The methods and assumptions usedin this analysis are consistent with those that professional transportationeconomists would use in analyzing projects of this type. The estimates of therange of net transportation benefits of the plan are reasonable and provideuseful information for voters to consider when deciding whether to supportthe measure.”

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1 . INTRODUCTION

The Puget Sound Region is considering a major investment of public funds into transportationVoters in the urbanized areas of Puget Sound must decide this Novemberwhether the region should buy an enhanced regional transit system. TheRegional Transit Authority is proposing new bus lines, improved access toHOV lanes, commuter rail, and light rail to connect different parts of theregion. Puget Sound residents will pay for these improvements with anincrease in the sales tax (four tenths of one percent) and an increase in themotor vehicle excise tax (three tenths of one percent). The plan will cost theaverage household $121 per year for the next ten years.1 The total cost is$3.9 billion over the next ten years and will require further ongoingoperating subsidies, debt service payments, and capital replacement afterthen.How should the region evaluate that transportation investment?Is the RTA plan a good transportation investment? This report providesinformation to help voters make that evaluation. Our approach attempts to answer the questions often posed by households when they make asubstantial transportation purchase decision such as deciding to buy aparticular car:• What will it cost to purchase?• What will it cost to operate?• How much will we actually use it?• Can we afford it on our current budget?• Are there other alternatives that provide the same level of service butcost less?Transit investments, like automobiles, do more than just providetransportation. They also convey an image and make a statement aboutstyle and priorities. These features sometimes dominate the decisions aboutthe type and cost of a car someone buys. The decision to buy a car alsoaffects the economic well-being of businesses such as the local servicestation. While these effects rarely weigh into an individual’s purchasedecision, they represent real consequences of the decision to buy a car. Ouranalysis of the RTA proposal considers both the transportation and non-transportation benefits of the proposed plan, including its potential economiceffects.

1 Washington Research Council, Policy Brief, September 1996.

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Since we are trying to describe and evaluate the benefits and costs ofalternative transportation investments, our evaluation is based on theprinciples of benefit-cost analysis. Most economists advocate this approach,but non-economists sometimes criticize it, mainly for the following reasons:1. The analysis can miss some important categories of benefits or costs suchas environmental costs.2. Analysts don’t know enough to predict the effects of some policies or thepotential effects are so uncertain as to make benefit-cost analysis apointless exercise.3. The whole framework is invalid because there are some things to whichone cannot assign dollar values.In this study we have been careful to avoid the first criticism by developingan exhaustive list of the potential benefits and costs. We have been aided in this by the RTA staff, who have developed a comprehensive list of the plan’s benefits. While we have not succeeded in calculating dollar values for allthese benefits, we have a complete list to work from. Regarding the secondpoint, we have tried to acknowledge uncertainty where it exists and to test a range of reasonable assumptions. If the likely effects of the RTA plan areuncertain, then that is something voters should consider. In the privatesector, when the potential returns of an investment are uncertain or risky,then investors usually require a higher rate of return to account for thisrisk. In our analysis we acknowledge the uncertainties that exist and try toconsider a range of reasonable values.Regarding the last point, we agree that it is not possible to assign dollar value to everything and some important aspects of life fall outside the calculus ofdollars and cents. Nonetheless, given the magnitude of the proposedinvestment, we think voters deserve the best estimate possible of the dollarvalue of costs and benefits we can calculate given the information andanalytic tools that are available. Voters can then compare the range ofestimates for the measurable benefits and costs to the intangible benefitsand costs (the ones that can be described, but perhaps not monetized or even quantified) to make a decision about whether, in their judgment, theinvestment is worth making.Background on this ReportThis study is a companion study to a July 8, 1996 Special Report released by the Washington Research Council entitled, Regional Transit Again: A Look at the New Plan . Readers interested in an overview of the current plan and its history should consult that document as well as the RTA’s Ten-YearRegional Transit System Plan.The analysis was conducted by ECONorthwest, an economic consulting firm.ECONorthwest has 20 years of experience advising public and private clientson all aspects of the development, operation, and financing of public facilitiesand services including: siting, least-cost planning, benefit-cost analysis,financing, forecasting and modeling, cost-of-service analysis, rate-setting,

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and policy analysis. ECO has offices in Seattle, Portland and Eugene and hasa staff of twenty-five professional economists, planners, and policy analysts.In recent years ECO has conducted a number of studies for the FederalHighway Administration, the Washington State Department ofTransportation, and the Puget Sound Regional Council on the application of least-cost planning to transportation system planning. ECO’s work has shown how to apply benefit-cost analysis to compare a wide range ofalternative transportation policies and investments.How this report is organizedThis paper follows the basic steps in benefit-costs analysis.Chapter 2, Evaluation Framework, describes the principles one should use in any rigorous evaluation of public policy and investment decisions. It provides an overview of the principles of benefit-cost analysis and highlights some of the potential pitfalls.Chapter 3, Costs, estimates the costs of building and operating the system. It reviews the capital and operating cost estimates used by the RTA plan and compares them to similar costs in other regions. It also discusses likelyfuture trends in operating costs.Chapter 4, Transportation Benefits, reviews the RTA’s estimates of theannual benefits of the investment and describes the categories of benefits we have re-estimated to reflect standard practice in this type of analysis.Chapter 5, Transportation Benefits and Costs Over Time, evaluates the value today of the likely stream of benefits and costs from the RTA plan using our revised estimate of the benefits and the RTA’s estimate of the annual benefits. This chapter also identifies some of the cost-effective elements of the plan.Chapter 6, Other Benefits, discusses some of the other non-transportation benefits that the RTA plan could provide the region.The final chapter offers some thoughts for voters to consider on the uses of benefit-cost analysis.

2 . EVALUATION FRAMEWORK

This chapter describes the principles we used in our analysis of the benefits and costs of the RTA proposal. Without an understanding of thefundamental concepts and methodological issues associated with benefit-cost analysis, readers may have difficulty following our analysis. The following principles guide our review and revision of the benefits claimed by the RTA and our evaluation of the project’s net benefits.

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At one level the task is quite simple. We need simply put dollar values on allthe costs and benefits of the system, such as those listed in Table 1 and anyothers that are relevant. Once we know the total costs and benefits andaccount for how they occur over time we can see whether the benefitsexceed the costs. But there are a number of issues to that analysts mustconsider.Table 1. Categories of Costs and Benefits of the RTA Proposal

2.1. MEASURE CHANGES IN PERFORMANCE AND SYSTEM COSTSThe main reason for making some investment in a transportation systemshould be to improve the performance of the system over what it would be inthe absence of that investment. Typical measures of transportationperformance are travel time (a measure of the amount of congestion),operating cost, and safety. Analysts need to know how the transportationsystem will perform with the investment compared to how it will performwithout the investment. This first step also includes measuring the directcosts of those improvements: planning, design, construction, operation, andmaintenance (which includes costs to both users and institutions).

2.2. EVALUATE ALL SIGNIFICANT BENEFITS AND COSTSMany of the costs of transportation projects can be measured by adding upthe market costs of the resources those projects use. Freeways take labor(planning, design, construction), concrete, steel, machinery, and so on. Thecosts can be added and expressed in dollars. Many of the benefits and costsof public projects, however, are ones not typically registered through markettransactions. Some of these benefits and costs are not internalized in theprices paid for the goods and services needed to build and operate theproject—for example, the costs of air pollution on people and property near

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highways where automobiles generate that pollution. Economists call such costs spillovers or externalities, and argue that society should consider them in its evaluation of a project since they result in real gains or losses.An example makes the point clear. Suppose a city is evaluating two optionsfor adding travel capacity across a river: one that adds new highway lanes tothe existing bridge, and one that adds lanes for non-auto modes only (bus,bike, and pedestrian). Assume the costs and benefits are identical in bothcases except that (1) the average travel time improvements are only slightlygreater for the auto-oriented improvement, and (2) air quality issubstantially worse with the auto-oriented improvement. If the decision isbased only on user benefits and costs, one chooses the auto-orientedalternative. When the air-quality benefits of the second alternative areconsidered, however, the decision could be for the non-auto alternative.An extensive literature exists in policy analysis in general, and intransportation in particular, on issues relating to identifying and valuing benefits and costs. The following is a summary of the main issues:• Costs are real economic resources used by a policy or project. Moneyfacilitates the exchange of useful resources, but is not a resource itself.Steel, concrete, labor, driver time, and gasoline are real resources thatget used up in the process of trip-making. Concrete laid in a freeway isconcrete not available for a sidewalk, and vice versa. Economists expressthis point by referring to opportunity cost: the value of a resource in itsnext best use (if it hadn’t been used for what it was, in fact, used for).Most goods in a market economy sell at their opportunity cost—thusmarket costs can be used to measure the value of many benefits andcosts. The cost of goods purchased from subsidized markets (e.g., goodspurchased from the public sector) may need to be corrected to account forthe true economic cost. Costs should be counted only when resourcesare used.This point has some important implications. It is not uncommon, forexample, for evaluations of transportation projects to count costs asbenefits, and sometimes more than once. To build a transportationproject, one must use labor. It is a cost. But evaluations often count it as a benefit (income to the economy), then double or triple it (the multiplier effect), and then count it as a benefit yet again under the heading of jobs. A related point is that what are often listed and added as either benefits and costs are really transfers. Taxes and grants are usually transfers(see the note following on perspective): money may move from one place to another, but no resources are used.• Benefits are negative costs; costs are negative benefits. Many of thebenefits of transportation improvements are best expressed as reductionsin the costs that would have been incurred in the absence of theimprovement; for example, decreased travel time, accidents, andoperating cost. The convention in the transportation literature, and theone followed in this project, is to talk about these decreases as userbenefits, even though it is certainly true that for some users some ofthese factors may increase (e.g., an increase in travel time is a negative

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benefit). The convention derives from the reasonable assumption thatfor any transportation improvement to merit consideration, it shouldreduce these costs; the reductions in costs are benefits for the users.• Benefits and costs should be defined, to the extent possible, in a way thatis both comprehensive and mutually exclusive. Accounting for allbenefits and costs requires identifying a comprehensive list of all (or atleast the significant) benefits and costs. But, the categories should notoverlap, or else some will be counted twice. For example, transportationevaluation typically counts reductions in travel time as a benefit. Butmany evaluations go on to count as benefits increases in property valuesand tax revenues due to such reductions in travel time, thereby double-and triple-counting the benefit.• Measuring all benefits and costs means considering some that do nothave obvious market prices. The most obvious example is loss ofenvironmental quality from pollution. Less obvious is the loss of timebecause of congestion. Though air quality and travel time are not tradedin any established market, they still are real costs that must beconsidered in any full evaluation of the costs of transportationinvestments. The professional literature of transportation andenvironmental economics provides a range of accepted values for thevalue (in dollars) of these types of costts.

2.3. DISCOUNT TO PRESENT VALUEAssume that all costs and benefits have been identified, categorized properly to reduce double-counts and transfers, quantified, and monetized. It is notenough to simply add them up. Benefits and costs that occur at some time in the future are worth less to most people than are the same benefits andcosts occurring today. Benefit-cost analysis accounts for this preference forpresent consumption.Given the choice of $100 today or a note redeemable for $100 one year fromnow, most people would choose the $100 today. But if that note were worth$1000 in one year, most people would choose the note over the immediate$100: they would accept the postponement of gratification, the erosion ofinflation, and the risk that, for whatever reasons, that payment in a year willend up being less than $1000. At some point in between they would beindifferent. In other words, individuals discount future dollars: a dollar nextyear is worth less than a dollar today, even if there were no inflation.Likewise, society as a whole is indifferent to receiving a dollar's worth ofbenefits in the future or some lesser amount today. This lesser, discountedamount is called the present value of the future benefit.The discount rate should reflect the opportunity cost of alternative uses ofthe money. Most often the opportunity cost of capital is viewed as the realrate of return on investments in the private sector. While the basic notion ofopportunity cost is straightforward, the theory for selecting the appropriatediscount rate gets complicated. Most economists who do research on

2.4. FOCUS ON DIFFERENCES BETWEEN ALTERNATIVESProject evaluation can be simplified by comparing each project to a“reference”, or “do-nothing” alternative. To choose among alternativeactions, it is sufficient to know how their effects differ. In all cases theconcern should be with reasonable estimates of the additional (marginal) costs and benefits resulting from a proposed action, compared to doingnothing.

2.5. PERSPECTIVE: BENEFITS AND COSTS FROM WHOSE POINT OF VIEW?Not only must all effects be considered, but they should also be consideredfrom all important perspectives. For example, a grant from the federalgovernment to regional agency is an expenditure for the U.S., a revenue forthe region the agency serves, and a transfer from the perspective of netsocial (national) cost. The issues of transfers cannot be ignored ifgovernments are to make efficient investments in transportation. Localgovernments often consider earmarked federal funds as benefits, or at leastignore them as costs. Projects with 80% federal funding will usually lookgood to local governments: they are, after all, receiving real resources thatthey can use to their benefit. But the federal government is also right tohold local governments to a more restrictive standard when it hands outdiscretionary funds. From the national perspective, giving funds to one localgovernment has real opportunity costs because those funds are not availablefor another project elsewhere. The concern should be primarily for theefficiency of projects based on total resource costs.

2.6. ALTERNATIVE SELECTION AND PROJECT EVALUATIONBenefit-cost analysis is often used to compare alternative investments:Should we invest in a regional plan that emphasizes buses or one that relieson rail transit? In our papers on integrated transportation planning(ECONorthwest, 1995a, 1995b, and 1995c), we have described the ways thatplanners can use benefit-cost analysis to develop and evaluate alternativetransportation plans. Our task in this report is somewhat different: toanswer the question of whether the RTA is a good transportationinvestment. In the course of analyzing the RTA plan, we have identifiedthose elements that are more or less cost-effective; but we are notcomparing the RTA to any other system alternative. The question weattempt to answer is similar to the one faced by the voters: Given the dataavailable will we be better off with the RTA plan than without it?To answer this question, we first consider the costs of the proposed system before turning to its benefits.

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Benefit -cost Analysis of RTA Plan3 . COSTS

The capital and operating costs of the RTA are approximately $4 billion2 overthe next ten years. This is a significant commitment of public resources tothe regional transportation system. The following table shows how much allpublic agencies (federal, state, and local) spent on transportation in the PugetSound region in 1992. The RTA plan represents approximately theequivalent of three years of the total public spending on transportation by alllevels government. Assuming the RTA’s annual spending is $400 million peryear ($4 billion divided by ten years), the plan represents a 27% increase overthe amount of public money spent on transportation in the region in 1992using constant 1995 dollars.Table 2. Uses of Transportation Funds in the Puget Sound RegionUses Total 1992 PercentExpenditures(millions)Public Transit $395 29%Highways $328 24%City Streets $264 20%County Roads $256 19%Ferries $111 8%Total $1,354 100%Source: Financial Element of Metropolitan Transportation Plan, 1995, Puget Sound Regional Council, Exhibit 2-2Just because $4 billion is a significant increase in the public resourcesdevoted to transportation does not mean the region should not spend it on the RTA plan. The point is that the plan represents a significantcommitment of regional resources and should be carefully evaluated for the benefits it will provide.Table 3 shows how the money will be spent over the next ten years.Approximately half will go to electric light rail, a sixth to commuter rail, asixth to improved bus service and transit access to the HOV system, and thefinal sixth to community connections (stations, transit centers, and park-and-ride lots), administration, future planning, and contingencies. The ten-yearperiod covered in Table 3 encompasses the full construction periods for theproposed rail elements and other capital investments. The operating costsare just for those elements that are completed and operating during the ten-year period.

2 The RTA’s figure is $3.9 billion in 1995 dollars. Converting 1995 dollars into 1996 dollarsputs the total over $4 billion.

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Table 3 includes $171 million in debt service. The RTA intends to finance $1billion of the capital costs with thirty-year bonds. The debt service on thatborrowing is $171 million through the year 2007. The total borrowing costson the $1 billion is approximately $2.7 billion over thirty years, so the vastmajority of the debt service will be paid after the period reflected in Table 3.By approving the plan, the region is committing itself to principal andinterest payments on bonds through 2030 as well as the ongoing maintenance and operating expenses of the system.

Table 3. Total Ten Year Costs (1997 to 2007) of the RTA Plan(in millions of 1995 dollars)Expenditures Capital Operating Total % of TotalElectric Light Rail $1,746 55 $1,801 46%Commuter Rail 539 130 669 17%HOV Access 377 0 377 10%Regional Express Bus 92 269 361 9%Community 255 0 255 7%ConnectionsFare Integration 0 45 45 1%Research & Technology 30 0 30 1%Phase II Planning 30 0 30 1%Contingency & 120 120 3%ReservesDebt Service 171 171 4%Administration 55 55 1%Total $3,069 $ 845 $3,914 100%Source: RTA, Appendix A, p. A-2.The capital and operating costs for the RTA have undergone extensivereview by the RTA’s Expert Review Panel. This panel has stated that theseestimates are “a sound basis for decision making” and they are the bestestimates we currently have about the project’s total costs. In the analysisthat follows we have relied upon the RTA’s cost information. The RTA staffcontend that the cost estimates are conservative and overstate the probablecosts of their proposal. Our brief evaluation of some of these costs indicatethat, while the capital cost estimates appear to be conservative, the operatingcosts are on the low end of the range experienced by other transit operators.Nonetheless, we use the costs recommended by the Expert Review Panel inour analysis.

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3.1. CAPITAL COSTSTo double-check the capital costs we did a quick comparison of the per-milecosts of the light rail element of the RTA plan with the current estimate ofthe costs of the MAX Westside light rail line in Portland. The per-mile costsfor the RTA are $83 million while MAX’s are $52 million. The RTA line mustbe built through a much more urbanized area with higher land values andinvolves twice the amount of tunneling as for the MAX Westside line. Thus,one would expect Seattle’s construction costs to be significantly higher thanMAX’s. Although we did not conduct a detailed evaluation of the capital costs in the RTA proposal, we did not find any evidence that the cost estimates are too low, as has been the case with rail projects in other U.S. cities.Table 4. Comparison of RTA and Portland MAX Capital CostsRTA Portland WestsideMAX lineCapital Cost Estimate $1.7 billion $0.9 billionTotal Miles 21 18Total Capital Costs Per Mile $83 million $52 millionMiles of New Tunnel 7 3Source: RTA, Appendix A; Conversation with Sandy Bradley at TriMet, Westside Light Rail Project

3.2. OPERATING COSTSTable 5 shows the per-rider operating costs for light rail, bus, and commuterrail systems around the United States. The final row shows the RTA’sestimates of these costs. The RTA’s per-rider operating costs for light rail aresignificantly less than the average of agencies serving metropolitan areas ofcomparable size to the Puget Sound region. The RTA staff justify theselower operating costs because they assume that the RTA lines would beserving corridors with heavy transit ridership and that they will be able tooperate at very efficient levels.3 The RTA’s per-rider bus and commuter railoperating costs are very close to national averages. However, the RTA’sfigures are below the existing per-rider operations and maintenance costs forthe King County Metro bus system. The RTA justifies its operating costestimates for bus transit with the explanation that the RTA will serveexpress routes with more demand and therefore more fare revenue thansome of the routes that Metro currently services. However, the RTA planalso contemplates regular bus service during non-peak periods which willpresumably be more expensive per boarding than Metro’s current peak-period service. Also the regional service that RTA will provide is more typicalof the kind of service provided by Community Transit which has the highest

3 Personal communication with Bob Harvey, RTA staff.

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cost per boarding because of the long trip length from Snohomish County into employment centers in King County.As with the capital costs, we accept the judgment of the Expert Review Panel that the RTA’s estimates are reasonable. However, in contrast to the capital costs, we have identified some reasons to believe that some of the operating costs (particularly for light rail) may be low.The RTA’s operating costs are estimated as if the system were runningtoday. One of the important issues in analyzing the overall benefits andcosts of the RTA proposal is the likely trend in these operating costs over the life of the system. Just as a car buyer wants to know the mileage and likely repair costs of a car when making a purchase, the trend in future operating cost is a major concern for transit systems.According to data collected by the Federal Transit Administration, between1990 and 1994 the national average operating costs per passenger mileincreased by 4.0% per year for bus and 7.2% for light rail after inflation. Anumber of factors contribute to the increased operating costs per passengermile: chief among them is the cost of labor. The wages of transit operatorshave significantly outpaced inflation and these costs have tended to drive upoperating costs. Other factors such as increased congestion and movingservice into less productive routes may have also driven up operating costsper passenger mile for buses. For light rail the recent addition of some morecostly systems could also be contributing to increases in the national average.These trends toward higher operating costs have been underway for at leastthe last fifteen years. The National Transit Database shows that busoperating expenses per passenger mile (expressed in constant dollars) havebeen increasing at an annual rate of at least 4% for the last fifteen years.William Baumol (1985) at Princeton first advanced the theory that the cost of providing public sector services will tend to increase more rapidly than othersectors of the economy. He theorized that the high percent of labor involvedin delivering public services and the lack of opportunities for technicalinnovation to improve labor productivity in these sectors would create costincreases in government that exceed the rest of the economy. Theexperience of national transit operators confirms the tendency for the costsof particular public service like transit operations to increase at a rate fasterthan the overall price level.

Our analysis later considers a range of probable growth rates in theoperations and maintenance costs for the proposed transit system. While we test the assumption of 0% growth in operating costs, given the experience of transit operators over the last twenty years, we think the most likely case is that operating costs will increase at rate somewhat greater than inflationover the next thirty years.

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3.3. DELAY COSTS DURING CONSTRUCTIONIt requires concrete, steel, and construction workers to build a new transitsystem; it also requires people to sit in their vehicles as they wait for theconstruction workers to move the concrete and steel into place. The costs ofdelay during construction are real costs that should be considered in theanalysis of any major transportation investment. If the purpose of the RTAis to save people time who are now stuck in traffic and if those future timesavings are to be counted as benefits (as they should be), then the moreimmediate time losses must similarly be counted as costs.The Environmental Impact Statement for the RTA plan does not provide any detail on the amount of delay other than to acknowledge that such delay will occur. We have not estimated this delay cost for our analysis either. Butresidents of the region should recognize that construction delay is a real cost. If it is not included in the analysis, the true cost of building the system will be understated. And because it occurs early on it outweighs benefits of similar magnitude that occur later on.

3.4. CAPITAL DEPRECIATIONEventually, light rail cars, commuter trains and the tracks they run on wear out and need to be replaced. For the system to keep delivering itstransportation benefits, it must be kept in shape. These capital replacement costs will occur after the ten-year period of the current tax proposal butnonetheless represent real costs to the system. From 2007 to 2030, the RTA staff estimate the RTA will need to spend $511 million on capital replacement to keep its systems operating properly. This money is in addition to theannual operating and maintenance expenses.At the end of thirty years the RTA will still retain the assets of the systemwhich fall on the benefits side of the ledger. By the year 2030, the remaining value of the capital assets of the system will be approximately $1.4 billiondollars after considering depreciation and the money invested in capitalreplacement.

4 . TRANSPORTATION BENEFITS

The RTA has produced a summary of the benefits of their proposed transitsystem entitled Appendix C: Benefits, system use and transportation impactsof Sound Move. This report lists the major benefits of the RTA proposal andestimates the dollar value of the key transportation benefits. In this sectionwe review the RTA’s estimates and present our own analysis of the dollarvalue of these benefits for the year 2010. In our study we have reorganizedthe RTA’s categories to address all the transportation benefits first. Table 6lists the categories of benefits developed by the RTA, the RTA mid-pointestimate of the benefits, and our revised estimate of the benefits.

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Table 6. Estimates of RTA Plan’s Transportation Benefits in 2010Developed by the RTA and ECONorthwestRTA ECOMid-range NorthwestEstimates EstimatesTypes of Benefits ($M/yr) ($M/yr)Travel time savings for system users 98 65.6Parking cost savings for system users 13 14.2Reduction in vehicle miles traveled 19 24.2(auto operating/ownership costsavings)Travel time savings for drivers of 86 7.8private vehiclesReduction in required employer- 14 11.1provided parkingIncreased mobility for commercial 13 0vehiclesImprovements in transit system 7 6reliabilityIncreased rail freight mobility n.q. n.q.Transportation benefits for special n.q. 2.3events at Kingdome and baseballstadiumSafety benefits of direct access to n.q. n.q.center HOV lanesImprove road system reliability n.q. UnlikelyNew People Moving Capacity n.q. DoubleCountPreservation of Transit Travel Times n.q. DoubleThrough Dedicated Right-of-way CountImproving Transit Mobility for “Choice” n.q. Doubleand “Dependent” Riders CountTotal Quantified Benefits 250 132n.q.: not quantifiedSource: RTA, Appendix C, Table 8; ECONorthwest calculations. The RTA staff havechanged their estimate of the project’s net benefits since the publication of AppendixC. Earlier this summer the staff recalculated their estimate of the travel timesavings to private vehicles and increased it from $20 million to $86 million. Inresponse to an early draft of this report they no longer count a $25 million benefitassociated with the reinvestment of local bus service that they previously claimed.

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The RTA has not done the level of analysis on the current plan that wasconducted on their earlier proposals. Due to reductions in funding the RTAhas had to use the earlier modeling efforts to estimate the performance ofthe proposed system even though the current configuration is somewhatdifferent. In the process of reviewing these extrapolations we identifiedsome that seem reasonable while others were not. For each category ofbenefits we describe how the RTA estimated the value and our reasons forrevising it.

4.1. TRAVEL TIME SAVINGS FOR TRANSIT USERSThe main benefit of a transit investment is that it takes people who use thenew transit capacity less time to travel than if the investment were notmade. The RTA reports the following travel time savings for the proposedplan:Table 7. Claimed time savings from RTA planCarpools Bus Rail Totaland Riders RidersVanpoolsDaily Time Savings 380,000 350,000 1,050,000 1,780,000(minutes)

The RTA indicated two sources for these estimates: one produced byWSDOT (1996) and the other by RTA (1993). We doubled-checked thereported time savings in these studies for the elements include in the RTAplan and found them to be roughly consistent. The RTA study entitledCentral Corridor Justification Project was a study done for the federalgovernment that analyzed a system similar to the current proposal minusthe extension from the Boeing Access Road to SeaTac. It also did notconsider any of the potential effects of the increased bus service in thetransit in the current RTA plan on rail performance. The corridor studyshows annual time savings of 4.1 million hours while the table above shows5.1 million hours. The RTA staff indicated that the difference is due to theestimated increased ridership that will come with the addition of the 5.7 milesegment out to SeaTac. The RTA scaled up the results of the CentralCorridor study by about 24% based on some limited additional modeling of

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Benefit -cost Analysis of RTA Plan

the effect of adding the SeaTac link. The RTA’s current forecasts of weekday ridership on the light rail line is 107,000, which is also about 24% more than forecast in the Central Corridor study.The method for estimating travel time savings in the earlier study wascarefully reviewed by the Expert Panel. The 24% increase in ridership andtime savings to account for the SeaTac extension is an approximation, but itdoes not seem unreasonable given the earlier modeling. However, furtheranalysis yields some results that are more troubling. Using the figuresprovided by the RTA in Appendix C, we calculated the implied time savingper passenger boarding on the rail elements of the plan at 8.5 minutes perboarding. This result is significantly higher than the Central Corridor studywhich showed travel time savings of only 2.1 minutes per boarding. Whilethis level of travel time saving is plausible for commuter rail with an averagetrip length of twenty five miles, it stretches credulity as an average ofcommuter rail and light rail. The RTA estimates the average trip length oflight rail users at 5 miles and its ridership is 91% of the total rail ridership. Ifthe average total trip speed on transit (including waiting and walking time)were 10 miles per hour without the RTA, it would take 30 minutes to make a5 mile trip. An average trip savings of 8.5 minutes per boarding implies thatthe average total trip speed will increase by 40% for all people using the RTA.Given the increased level of transfers from bus to rail transit and the lengthof walks within and to and from rail stations, it is difficult to imagine totaltravel time savings of that magnitude.While we are skeptical about the RTA’s claimed level of travel time savinggiven the high level of travel time savings per boarding, we have nonethelessrelied upon the RTA’s estimates in our analysis. However, we depart fromthe RTA’s work in our estimate of the value of travel time, a value whichthey set at $12 per hour. Most studies of how people value their travel timeindicate that people value their in-vehicle travel time at about half theirwage rate. Indeed, most travel models (including PSRC’s) use an even lowerestimate, about 20% to 25% of the wage rate for the journey to work. Theaverage regional wage rate is approximately $16.00 per hour. We thereforethink $8 per hour is a more reasonable estimate of the value of time savings.In the study done for the federal government, the RTA was required to use atime value of $5.50 per hour. We tested the cost effectiveness of the RTAusing a range of time values from $12 per hour to $6 per hour.

4.2. OTHER COST SAVINGS FOR TRANSIT USERSIn addition to saving time, people who would have driven cars and areinduced to ride transit because of the improved service will also save thecosts of operating and parking their vehicles. Estimates of these benefitsrely on the RTA estimates of the number of new transit riders the systemwill attract and how many fewer miles they will drive their cars. In a reportprepared for RTA member Rob McKenna, the RTA developed the data in thefirst two lines of Table 8 which shows their estimates of the new transitriders by mode. The last line shows the RTA’s estimate of the annual

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reduction in vehicle miles traveled (VMT) using estimates of average trip length and vehicle occupancy.Table 8. Estimates of New Riders Due to RTA System

* This is attributed to the combined effect of greater transit system connectivity and reinvestment of bus hours.Source: RTA Appendix A: New Riders and ECONorthwest calculationsThe new riders for buses were estimated by RTA staff at 15 new riders for each hour of new bus service. The plan would add a total of 640,000 new hours of bus service per year. About half that would go to replacing existing bus routes and half would go into new express bus service.The new rider figures for light rail relied on the same Central Corridor studyused to estimate the time savings from rail investments. However, theearlier report shows only 19,200 net new daily riders from the new railservices while the table above shows 32,000 net new riders per day. Thisestimated increase is much higher than the earlier estimates of increases intravel time savings and ridership due to the SeaTac extension. In thosecases, travel time and ridership were 24% higher; in this case new riders are67% higher. After discussing this inconsistency with RTA staff, they

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conceded that 24,000 new riders per day for light rail was a more reasonable estimate given the analysis done in the earlier study. 4We are also skeptical of the new rider estimates for commuter rail. The RTAestimates weekday boardings on the commuter train at 12,600. With 5000new riders the RTA is claiming that 40% of the riders on the commuter railwould not have been using transit before. Given that the commuter railservice is so similar in type and performance to existing express bus service,it seems unlikely that commuter rail will attract such a high percentage ofnew riders.The studies of the southern commuter rail line indicated that commuter railcould provide service from Auburn to King St. station in 30 to 35 minutes.Current bus service, such as Route 150, takes 1:07 hours to get from Auburnto University Street station in the bus tunnel. Saving nearly half an hourcould certainly attract new riders to commuter rail. However, the relevantcomparison is between commuter rail and the future travel times on buswith a completed HOV system. For example, Route 175 now serves FederalWay with express bus service that takes 41 minutes to get from theUniversity Street station to the Federal Way park-and-ride. Federal Wayand Auburn are approximately equidistant from downtown Seattle. Afteraccounting for the travel time from King St. station to other parts ofdowntown on the commuter rail line, there is virtually no time savings withcommuter rail compared to express bus service; and rail provides much lessfrequent service. While buses serving Auburn do not currently have accessto HOV lanes to the extent of those serving Federal Way, the currentlyfunded portion of the HOV system will eventually reach to Auburn. With acompleted HOV system, buses serving Auburn will have competitive traveltimes with commuter and offer trips every ten or fifteen minutes during thepeak period compared to much less frequent service provided by commuterrail.In the Central Corridor study new riders were only 7.4% of the totalridership on the light rail line. We think this is probably an upper bound on the percentage of new transit riders for commuter rail. If so, the commuter rail line will generate at most 1000 new transit riders per day.Table 8 shows our revised estimates of new riders and VMT. The VMTreductions are calculated by multiplying the new riders times their averagetrip length by mode as reported in the RTA’s travel model, then adjusting foran average vehicle occupancy of 1.2 persons per automobile. With theserevisions the total annual new riders is reduced from 19 million to 13.6million and the VMT savings is reduced from 127 million to 78 million.This reduction in our estimate of the new riders and the VMT savings will, in turn, reduce the benefit estimates for parking cost savings, auto operating cost savings, and travel time savings for road users.

4 Personal communication with Bob Harvey, RTA staff.

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4 . 2 . 1 . PARKINGThe RTA staff estimated savings from parking by multiplying the number ofnew round trips made on transit times the percent of commuters who payfor parking times the average cost of parking. They then deduct the costs ofthe transit fare for these riders. The RTA estimates that 50% of the trips nolonger made in autos would have had to pay parking at an average cost of$5.00 per parking place. After adjusting this savings by the increased cost ofthe transit fare, the RTA estimates parking savings of $13 million per year.We used the RTA’s assumptions about the percentage of trips that payparking and the average costs of parking but applied it to our lower estimate of new two-way transit trips. We estimate the parking savings to newtransit riders at $14.2 million per year. Our estimate of parking savings isslightly higher than the RTA’s because we do not deduct the additional fares paid by the new transit riders. We account for the increased payments intransit fares later in our analysis.

4 . 2 . 2 . AUTO OPERATING /OWNERSHIP COSTSNew transit riders will also save the costs of operating their cars includinggas, oil, tire wear, and regular maintenance. The RTA analysis used anassumption of $0.15 per mile. This rate does not include the full costs of autoownership. The implicit assumption is that people will continue to own thesame number of vehicles and at the margin will only save the costs ofoperating their vehicles when they choose to use transit. In our estimate,we combine the vehicle ownership and operating savings by using the valueallowed by the Internal Revenue Service when deducting auto expenses,currently $0.31 per mile. We prefer to use this higher number because webelieve that if people use their cars less, they will tend to replace them lessfrequently, and so over the long-run save more than just the vehicleoperating costs. The rate we use is less than some other estimates of the fullcost of ownership, which can exceed $0.40 per mile (Litman, 1994). Ourestimate includes ownership as well as operating costs savings but makessome allowance for certain auto-ownership costs such as insurance andlicensing that may not decrease when autos are driven less. Our estimate ofthese savings are $24.2 million, higher than the RTA’s estimate of $19million.

4.3. TRAVEL TIME SAVINGS FOR ROAD USERSThe RTA estimates that the travel time savings to private vehicles thatremain on the road is $86 million. Our estimate of the benefit of freeingroad capacity is considerably less, approximately one-tenth of the RTA’sestimate. Part of the reason is our lower estimate of the VMT saved due to new transit riders; the much more significant reason is the measure of the benefit per reduction in VMT.When the cars of new transit riders leave the highways they free up roadcapacity for those vehicles that remain on the roadways. Most of the road

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Benefit -cost Analysis of RTA Plan

capacity freed up by transit riders is filled up with new drivers who will wantto take advantage of the improved road conditions. Litman (1994) reportsthat for every 100 spaces freed up on a congested road, between 50 and 80are filled up with additional vehicles. A more recent study by Hansen (1995)indicated that a 10% increase in highway capacity results in a 9% increase intravel demand within five years. This phenomenon of “latent demand” iswhy most new road capacity quickly fills up with new drivers and is also the reason the RTA has been candid about acknowledging that the plan will not improve traffic conditions on the region’s highways. The main benefit of getting some people off the roads is that some new people will get to drive in nearly the same road conditions.The value of this benefit has been estimated by a number of analysts.ECONorthwest (1994) conducted an analysis for the Puget Sound RegionalCouncil which indicated that the cost of congestion averages about $0.07 perVMT in 1994 and will increase up to $0.12 per VMT by 2020. Litman (1994)surveyed the literature on this topic and recommended a congestion costrange in urban areas of $0.17 per VMT during peak periods. However, sincenot all of the RTA’s new riders are coming out of the peak we would expectthe average benefit per VMT reduced to be below $0.17. The RTA’scalculation uses an implied benefit per reduced VMT that is four times thislevel. The RTA’s analysis that results in a $86 million per year figureassumes that VMT reductions generate an average benefit of $0.68 per milereduced. We know of no credible studies that support this high an estimateof benefits from VMT reductions. Our estimate is based on modeling workby the Puget Sound Regional Council. Our estimate of $0.10 per VMT for2010 splits the difference between $0.07 in 1994 and $0.12 in 2020. Using afairly optimistic5 estimate of $0.10 per VMT reduced, the benefits of the RTAto road users are $7.8 million per year.

4.4. REDUCED COSTS FOR EMPLOYER PROVIDED PARKINGIf the RTA plan causes some drivers to take transit instead of driving, thenthe parking spaces they use can be converted to other uses or made available to other drivers. The RTA estimated this benefit by multiplying the number of round trips to work times the percent of travelers who do not pay forparking times the value of each parking space. The RTA cited a study byMetro which indicated that the average annual cost per parking space to the owner is $1000 in the Metro service area. We have not had an opportunityto review that study but have used the same method with our revisedestimate of new trips made on transit. The RTA estimated this benefit at $14 million per year; we estimate it at $11 million.

5 The estimate is “optimistic” because the cost per VMT figures reflect the average value ofthe congestion externality imposed on drivers when the highway system is operating atoptimal efficiency under a congestion pricing approach. Since the highways won’t be priced,the value of the induced trips will be less on average than reflected in these figures.

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4.5. COMMERCIAL VEHICLESThe average value of travel time for commercial vehicles is significantlyhigher than those of commuters. The cost of running a commercial vehiclefor an hour includes wages, benefits, vehicle operations, and the time valueof the cargo. These costs in the Puget Sound have been estimated as high as$60 per hour (ECONorthwest, 1996). Even though commercial traffic is asmall percentage of the total vehicle miles traveled in the region (less than10%), the high value of time for these trips can yield significant benefits ifhighway speeds improve because of the transit investment.For the RTA project, it is not clear that commercial vehicles driving onhighways will enjoy any significant time savings. With private vehicles ourestimate of the benefit per VMT reduced is mostly a proxy for the value ofinduced trips (and a high one at that). Commercial vehicles will make up anegligible percentage of these new trips, and those who do make new tripsvalue the trips at the same rate as those made by private vehicles. Sinceneither we nor the RTA staff expect the current plan to yield anymeasurable improvements in travel time on the region’s highway system, the vast majority of commercial vehicles will experience little benefit from the plan beyond that captured in the earlier estimate of the benefits toprivate drivers. The RTA estimated the benefit to commercial drivers at $13 million per year; we believe that there is no measurable benefit.

4.6. TRANSIT RELIABILITYOne of the advantages of rail transit is that service can be more reliable thanbus transit. With exclusive right-of-way and few opportunities for roadwayincidents to alter train schedules, rail transit is less likely to get off scheduleand delay travelers. On the other hand, if one train stalls on the tracks, itslows down every train behind it until it is moved out of the way. Thepotential for enhanced transit reliability with rail is not accounted for in thetypical travel models and its benefits are therefore not included in theestimates of travel savings and transit ridership. There are no well-acceptedtechniques for measuring this benefit of rail transit. The RTA has estimatedthe value of this benefit at 10% of the travel time savings. We are willing toaccept the 10% of travel time savings estimate as a best guess with thecaveat that the value of the benefit is quite uncertain.

4.7. RAIL FREIGHT MOBILITYThe improvements to the freight tracks that will run the commuter rail willalso benefit the freight trains that use it. This is a real benefit, but we havenot reviewed any data yet which allow us to calculate its value.Furthermore, we question the appropriateness of including this benefit inthe evaluation of a plan focused on improving the mobility of people. The railcorridor in question is likely to experience significant increases in freighttraffic over the next twenty years to serve the growth in container trafficthrough Port of Seattle’s facilities at Harbor Island and elsewhere. Whetherthe RTA passes or not, this rail corridor will likely need investments to

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improve its performance in moving rail freight. If these improvements are indeed needed, then having the RTA pay for the improvements represents a shift in responsibility for financing additional rail capacity onto the general taxpayers and away from the Port of Seattle and freight movers.The RTA has reported to us that rail freight movements add $100 million peryear to the local economy. Even if this is true, the number doesn’t help usestimate the benefits of improving rail freight performance along thecommuter rail line. As with all the other benefits we have considered, werewe to calculate this benefit we would need to estimate how much rail freightperformance will improve with the RTA investments to begin to calculate itsvalue.

4.8. CAPACITY FOR SPECIAL EVENTSOne advantage of the proposed rail system is the ability to serve the areaaround the Kingdome and new baseball stadium. Congestion around specialevents can be severe; the RTA would provide some additional capacity tomove people in and out of a very congested area. This is a real benefit of theinvestment that is not captured in the existing travel models which focus onthe journey between home and work. We have estimated the magnitude ofthese benefits and included them in the range of benefits considered in theevaluation.According to the Central Corridor Study, the light rail system will have apeak one-way capacity of 4,300 passengers per hour. Assume there are 100 events per year, and that for one hour before and after the event the light rail system operates at peak capacity in both directions carrying only event patrons. Further assume that each rider saves ten minutes in timecompared to their alternatives without the light rail line and that the value of their time is $8 per hour. These assumptions yield an annual benefit of $2.3 million per year. This estimate is a reasonable approximation of the potential benefit of the added capacity to serve special events.

4.9. IMPROVED SAFETYThe proposed improvements to the HOV system will allow buses and carpooldrivers direct access to the HOV lanes instead of having to weave throughgeneral purpose traffic. This will generate real benefits in terms of thereduced stress involved in getting into the HOV lanes and fewer accidentsfrom people weaving in. This benefit is difficult to estimate but is a likelybenefit of the plan that voters should consider even if we cannot estimate itsvalue.

4.10. IMPROVED ROAD RELIABILITYThe RTA claims that the plan may improve road reliability for non-transitusers. We think this benefit is likely to be very small. As discussed earlier,much of the traffic that shifts on to transit will be replaced by new drivers onthe freeways. The congested conditions that lead to highway incidents and

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unreliable travel times are likely to persist. Travel times on transit will be more reliable with the RTA system but it is unlikely that roadways will be more reliable with the proposed plan.

4.11. OTHER TRANSPORTATION BENEFITSThe RTA lists several other transportation benefits that are slightly different from those already discussed:• New people moving capacity• Preservation of transit travel times through dedicated right-of-way • Improving transit mobility for “choice” and “dependent” ridersThe benefits of new people moving capacity are already included in theestimates of ridership and travel time savings. The only benefits of newcapacity are those associated with using it. There is some argument to bemade, however, for redundancy. In the 1989 earthquake in San Francisco,several key roadways were disabled. BART’s ridership increasedsubstantially and offered much needed capacity at the time. The ridership onthe RTA’s rail line could also go up significantly if an earthquake disabled amajor portion of I-5 and rail transit was the only way to cross the ship canalor get to downtown Seattle from the airport. Redundancy is a real benefitbut very difficult to quantify. Its utility requires a cataclysmic event thatdisables other transportation links but leaves the RTA intact.Preserving transit travel time through dedicated right-of-way is mostlyreflected in the travel time analysis. The RTA staff have expressed theopinion that the benefits of preserving travel times on exclusive right-of-waywill increase over time as the conditions on the regional highwaysdeteriorate. This is a plausible position and one we evaluate in the nextsection.The third point is a bit vague but seems to be addressing the potentialbenefits of the plan for low-income people or “dependent riders”. Themobility benefits of the plan are already estimated in the other categories ofbenefits, so this point seems to suggest that the RTA system will providebetter transportation services for people with low incomes. The light rail linegoes through the Rainier Valley in Seattle and may indeed provide bettertransit service for some low-income households. It is difficult to evaluate theplan’s overall effect on equity because significant resources are servinghigher income areas as well. We think it is possible that some people withlow incomes who live close to improved transit service will be better off withthe RTA plan than without it. However, voters concerned about equityshould also consider the effects of the sales tax increase on those with lowincomes. The sales tax is a regressive tax, which means that those with lowincomes will pay a higher proportion of their income to support improvedtransit service than those with high incomes. Many low-income people inthe region who will pay the tax increase are unlikely to enjoy transit benefitsthat exceed the amount of their tax increase.

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Benefit -cost Analysis of RTA Plan5 . EVALUATION OF TRANSPORTATION BENEFITS AND COSTS OVER TIME

The preceding section compared the RTA’s estimates of the benefits of theirproposal with our revision of those estimates for one point in time, the year2010. The RTA estimates the annual benefits at $250 million in that year; we estimate them at $132 million. In this section we project the benefits andcosts of the proposal over the next thirty-three years and then compare thevalue today of the stream of benefits and costs. There is always uncertainty when forecasting the future; we therefore test a range of values for some of the key assumptions in the analysis.5.1. ASSUMPTIONS USED IN ANALYSIS InflationAll of the costs and benefits are expressed in constant 1995 dollars. Thus the growth rates used are “real” growth rates after removing the effects ofinflation.Benefit Growth RateOur estimates of the RTA plan’s benefits are for the year 2010. To estimatethe benefits from 1997 to 2010 we have made a straight line projection fromzero to our estimate of the 2010 benefits. This approach reflects the fact thatthe system will be under construction during that period and will not startgenerating full benefits until 2010. From 2010 to 2030 we test a range ofassumptions. In an earlier version of Appendix C, the RTA forecast thebenefits after 2010 assuming a 1.6% growth rate, which is the projected rateof population increase in the region. In the final version of the study, theRTA choose not to forecast the growth rate in benefits because they feltthere was not enough data to support a definite conclusion.In most regions with rail and bus transit, the percentage of trips on transithas declined over time in spite of investments in increased transit capacity.Figure 1 shows the number of trips to work made on transit and the percentof trips made on transit in three areas that have made significantinvestments in transit: Atlanta, San Francisco, and Portland, Oregon.Atlanta has the MARTA rail system, the Bay Area has BART and Portlandhas MAX. Seattle information is also included in the figure. One can seethat transit ridership in areas with significant transit investment hasincreased slightly since 1970 and has been flat or dropped since 1980. In theperiod between 1970 and 1980 labor force participation by women increasedsignificantly, and the oil shortage of 1979 tended to boost transit ridership in1980. Since 1980, oil prices and female labor force participation have notchanged much, and transit mode share has steadily dropped. Our review ofthese data indicate that areas experiencing population growth that invest inrail transit will tend to maintain existing transit ridership and decreasingtransit mode share.

If the region invests in the current RTA plan and does not vote for furtherexpansion of the system, we think the benefits associated with the “starterrail” link will decline over time. Other regions have had to keep investing inrail transit to maintain constant ridership; without ongoing investment,ridership declines. For this analysis we have made the more generous

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assumption that the trend in travel benefits from the RTA will not decline but remain constant or have a growth rate of zero.There is a plausible argument that is made by the RTA staff that as theperformance of the highway system declines over time, the relative timesavings of transit may increase, and more and more people will use transit. We test this idea by evaluating a benefit growth rate of 1.5% per year. This is the rate of increase in transit mode share that would have to occur toreach the Puget Sound Regional Council’s target in the MetropolitanTransportation Plan for 2020. That plan assumes completion of the fullregional rapid transit system.Operations and Maintenance Cost Growth RateAs discussed in Section 4, average operating and maintenance costs per riderhave increased at an average rate of 4% above inflation for the last fifteenyears for transit agencies nationally. We do not know if this trend willcontinue indefinitely but given labor’s high percentage of transit costs, itseems likely that operating and maintenance costs will increase more rapidlythan inflation. We estimate a growth rate in operating and maintenancecosts of 1% over the inflation rate; we test a range of assumptions from 0%to 2%.Discount RateThe discount rate is the rate used to estimate the value today of future costsand benefits. It is closely related to the rate of return on investments in theprivate economy. The logic of using a discount rate is that if the public sectoris going to take money out of the private sector and spend it on a public good,the return on that investment over time should be at least as high as itwould be if the money had remained in the private sector. We use a fixedrate of 4%, which is approximately the rate for long-term borrowing by bluechip companies after removing inflationary expectations. This estimate isgenerally consistent with the approach recommended by the GeneralAccounting Office (1991), but considerably lower than other recommendedrates. The federal Office of Management and Budget has recommended realdiscount rates as high as a 10%. Using a lower rate like 4% tends to favorinvestments like the RTA, which have most of their costs up front and mostof their benefits in the future.TSM FactorMost of the travel performance data developed for the RTA compared theRTA plan with a Transportation System Management (TSM) plan. The TSM alternative was included as a subset of the RTA plan. The RTA describesTSM as follows:“The Transportation System Management (TSM) forecast reflects transit ridership growth due to population and employment increases,completion of the state Department of Transportation Department’s core HOV system and those transit service increases that can be paid forwithin existing transit agency tax sources.”(RTA, Appendix C, C-3)

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The TSM scenario is the baseline against which the costs and benefits of theRTA plan is measured. In our conversations with the RTA staff, they havecontended that their analysis underestimates new riders and travel timesavings because the TSM plan as modeled will not actually happen. Theyargue that if the RTA plan was compared to a true base case the travel timesavings and new transit ridership would be significantly higher. This position disagrees with how they describe TSM in their most recent report but wehave nonetheless considered it.Given our analysis of the estimated travel time savings per boarding, whichseemed quite high, we think it unlikely that the actual travel time savingsfrom the RTA are greater than those that they report. Our estimate of thetravel time savings is the same as that used by the RTA, but with a lowervalue of time. To test the RTA’s contention about the effects of using TSM asthe base case, we have included a “TSM Factor” which takes the total benefitestimate and increases it by 20%. This factor is simply a way of answeringthe question, “Suppose the plan’s annual benefits are 20% higher than thetravel modeling indicates?’ At the other end, we test the assumption thatbenefits are 20% lower than claimed to account for the RTA’s high estimateof time savings per boarding.Value of TimeThe value of travel time is a key assumption in this analysis. The RTA uses $12 per hour which is considerably higher than typically used in these types of evaluations. We estimate $8 per hour, half the regional wage. This is the level recommended by Small (1992) in his book on transportation economics. We test a range from $12 to $4 per hour. The most conservative assumption here is the implied value of time in the regional travel models.Benefits to Road Users Per VMT ReductionOur estimate of the benefits to road users per reduction in vehicle milestraveled is $0.10. As discussed in Section 4, this estimate comes from a study done in the Puget Sound region of the average value per mile of themarginal trips made in the region (ECONorthwest, 1994). We test a range of benefits to road users caused by removing vehicles from the road from $0.17 to $0.03 per mile. The top of this range is Litman’s (1994) estimate of thevalue of removing traffic from a congested urban freeway during peakperiods. Since not all of the reduced VMT are from the peak, this is a highestimate. The $0.03 is near Litman’s minimum estimate of the benefits ofreducing congestion in an urban area.

5.2. RESULTS OF ANALYSISUsing the above estimates, we can forecast the pattern of benefits and costsover time using our estimate of the annual benefits of the plan in 2010 andthe RTA’s estimate. Figure 2 shows our estimate of the stream of benefitsand costs; Figure 3 shows the same cost forecast with the RTA’s estimates ofbenefits for the year 2010 projected over thirty-three years. What is

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significant in both figures is how much the costs of the project are skewedtowards the first ten years while the benefits occur mostly in the future.6The large benefit in the year 2030 reflects the residual value of the system at that time. The increased costs in 2017, 2022, and 2027 reflect capitalreinvestment necessary to replace capital stock as it wears out.Figure 2. Benefits and Costs Over Time Using ECONorthwestAssumptions of Annual Benefits

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Table 9 shows the net benefits of the RTA plan using both our assumptionsabout the benefits and the assumptions of the RTA. Our analysis indicatesthat the present value of costs of the RTA plan exceed its benefits by $2.5billion. Using the RTA’s assumptions of the benefits, which puts high valueson travel time savings and removing traffic from the highways, the plan’scosts still exceed its benefits by $1 billion. The implied internal rate of returnon the investment in the RTA is minus 4.1% using our assumptions and 1.1%using the RTA assumptions. The annualized cost per new transit rider overthe thirty years is about $13,000 with our revisions and over $9,000 with the

6 The graph does not show debt service but rather the actual capital and operations andmaintenance expenditures in the year they occur. An alternative way of presenting thecosts would show the debt service on the borrowed capital. In terms of calculating the net present value, these two methods of allocating costs over time have the same effect if the real discount rate and the real borrowing rate on the bonds are the same. The 4% real discount rate we use here is approximately equal to the RTA’s estimate of tax-exemptborrowing after removing the effects of inflation.

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RTA assumptions. This last figure represents an annualized estimate of thecapital and operating cost of the system divided by number of new transitriders.7Figure 3. Benefits and Costs Over Time Using RTA’s Assumptions ofAnnual Benefits

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-400

-600

Residual Valueof $1.4 billion

BenefitsNew FaresO&M subsidyCapital

7 This number is calculated by dividing the present value of all the costs of the project bythe present value of the number of new transit riders per year. Annual new riders per yearis calculated by dividing the number of new transit trips per year by 250 (the number ofcommuting days per year) and dividing again by 2 (to reflect that each rider makes 2 tripsper day).

We have tested the degree to which changing key assumptions in theanalysis varies the result. Using our estimate of net benefits as a base weanalyzed how the results changed as we varied each assumption. Table 10shows the results of varying the assumptions on the benefit growth rate, the growth in maintenance costs, the value of time, the benefits of reduced VMT, and a TSM factor to increase the estimated benefits. The parameters thathave the most significant effect are the value of time and the TSM factor.Within a reasonable range of these values no one parameter changes the net benefits of the RTA plan by more than 16% of our base value of costsexceeding benefits by $2.5 billion.The RTA has asked us to consider the net benefits of the plan not countingthe costs that will be paid by the federal government. We think this is notthe proper analytic approach since the federal money represents realresources that should not be dissipated. However, adopting the view thefederal share of the RTA does not count as a cost to the region, the plan’scosts still exceed its benefits. Assuming that the federal government paid its $727 million share immediately, the present value of the plan would still be a minus $1.8 billion for the region.

The analysis in Table 9 indicates that the RTA is not a cost-effectivetransportation investment if its only benefits are the changes intransportation performance we have estimated above. Nearly all of therelevant transportation costs and benefits have been included in thisanalysis. On the cost side we have left out the costs of construction delay, onthe benefit side we have left out the value of safety improvements and theimproved performance of rail freight on the commuter line corridor. We donot think that including these categories would substantially improve theresults for the RTA. Since delay costs can be quite large and occur early,they are likely to outweigh any safety and rail freight benefits.

5.3. NET BENEFITS OF HOV LANES & BUSESTaken in its entirety the RTA plan does not meet the basic investmentcriterion of having transportation benefits that exceed its cost. However,some elements of the RTA Plan are quite cost effective. Most economistswho analyze transit policy have argued that buses offer a more cost-effective alternative to rail transit (Kain, 1995; Keeler and Small, 1975). Busesperform best when they are granted clear right-of-way on high occupancyvehicle (HOV) lanes.Our analysis of the data used to support the investments in bus access to theHOV system indicate that many of the bus access projects included in the

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RTA plan are cost-effective transportation investments. The stateDepartment of Transportation conducted a study of the travel time savings of enhancements to the HOV system that was independent of the RTA’smodeling. Their estimates of travel time savings were based on existingcarpools and bus routes and did not account for some of the system-widebenefits of a fully integrated HOV system. The HOV investments that wereincluded in the RTA plan were those that allow buses and carpools directaccess to the HOV lanes without having to cross over general purpose lanesthat are moving slower than the HOV lanes. The following table showsseveral of these direct access projects, their estimated cost, and the netbenefits and rate of return on the investment. The benefit estimates forthese investments are based on existing bus routes. If additional routeswere added, the net benefits would be greater.Table 11. Cost-effective Elements of the RTA Plan: Direct Access to HOV LanesLocation Cost Benefits Rate of Return($ Minus Costsmillions) ($ millions)*164th Street SW & $1.98 $36.26 106%SR 525I-5 Ex/NE 50th $ 6.04 $12.50 18%Street HOV RampI-5/NE 145th St $ 8.83 $9.88 13%I-5/S 320th St. $23.71 $19.41 11%I-5/E-3 Busway $46.09 $26.81 9%I-5/S 272nd St $ 26.98 $3.86 6%164th/ Ash Way $10.85 $0.49 5%P&R /I-5Bellevue CBD $65.95 $0.67 5%*Present value (benefits minus costs) estimated using a 5% real discount rate. Source:Travel Time Savings Summary Report, Puget Sound HOV Pre-Design Studies Phase II, 1996; benefits estimated by ECONorthwest.

The greater cost-effectiveness of buses and HOV lanes is also reflected in thedata on new riders. Table 7 showed that new riders from buses make upover half of the new riders from the RTA plan. However, bus service, HOVaccess, and community connections receive only one quarter of theinvestment from Sound Move. With only 25% of the investment, bus servicegenerates over half of the new riders. Cost-effective investments inimproved bus service and HOV lanes can provide more transportationbenefits for less money than the existing plan with its emphasis on railtransit.

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Benefit -cost Analysis of RTA Plan6 . OTHER BENEFITS

The RTA’s Appendix C: Benefits, System Use and Transportation Impacts of Sound Move provides a list of the systems non-transportation benefits to which the RTA could not assign dollar values but which they nonetheless determined to be real benefits which voters should consider. In this section, we discuss these categories of benefits.

May occur but represents thecapitalization of travel time savings. Including dollar value double counts travel time savingsFederal money assumed for these effects may be available for otherprojects; Puget Sound region is already near full employmentIf RTA represents cost-effectivetransportation investment, then small effects possible. If not cost effective, then little or negative effect on overall economic activityVery small; most of the auto travelersmoved on to transit will be replaced bynew auto drivers. Also, auto accesstrips to transit will generate pollutionInvestments in radial transportation systems, whether road or transit, tend to increase sprawl. Enhancedpedestrian environment is a benefit,but small percent of plan goes into this.

Integration may be a convenience for some but can also lead to inefficient pricing policies

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Benefit -cost Analysis of RTA Plan

6.1. INCREASED PROPERTY VALUES NEAR TRANSIT TERMINALSThe RTA lists as one of the benefits of the plan the potential increase inproperty values near transit terminals. While the RTA does not report adollar value for this effect, its inclusion with the list of other benefitssuggests that this benefit should be added to the other benefits of the RTA.The economics literature is very clear that the changes in land values neartransit stations is primarily a capitalization of travel time savings. To countboth travel time savings of a transit investment and the increases inproperty values therefore counts the transportation improvements twice.The authority that the RTA cites for this benefit, a 1994 article by Landis,Guhathakurta and Zhang, begins with a ready acknowledgment of this fact;“The assumption that accessibility is capitalized into property values lies atthe heart of contemporary urban economics.” What is particularly worthnoting in their study is that of five rail transit systems they analyzed, onlytwo, BART and San Diego Trolley, showed evidence of higher propertyvalues near transit terminals. The authors conclude, “Although theexistence of transit price premiums may be evident in retrospect (as in thecase here [with BART and San Diego]), they are certainly not guaranteedbefore the fact.” That is to say that the other systems they studied—SanFrancisco commuter rail, Sacramento and San Jose light rail—did notgenerate enough accessibility benefits to cause significant effects on theproperty near their transit terminals. The RTA’s own citation on this issuenot only refutes the RTA’s position of double counting accessibility benefitsand changes in property values, but also indicates that the transportationbenefits of rail are so low in three out of the five cases that the researcherscould detect no change in neighboring property values.

6.2. CONSTRUCTION EMPLOYMENTWhether employment is an additional benefit is a matter of perspective. Ifoutside (federal) money came into the region that would not otherwise havecome in, then it could potentially creating new employment and employmentmultipliers. If RTA were paid for only with local money, there would be noeffect on employment, since the taxpayers in the region have discretion tospend the same amount of money on other employment-producing projectslike building low-income housing or adding teachers to schools.The RTA contends that the plan will generate between $78 and $118 millionin construction and related employment per year during the ten years theproject is under construction. This amount is based on the $727 million infederal subsidy that is part of the plan. If this federal money actually comesthrough, then the RTA’s stated range is a reasonable estimate of the likelyemployment effects of proceeding with the project. However, there areseveral issues that voters should consider in evaluating this potential effect of the project:

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Benefit -cost Analysis of RTA Plan

• Will the federal money really come through? The RTA feels confident ofits eligibility, but the fiscal climate in Washington has changed and thefederal match is not guaranteed.• Will other federal spending in this region be displaced by the federal RTAmatch? Will the political process in Washington D.C. determine that withthe RTA the Puget Sound has gotten its share of federal money and limitother spending here so that no net increase in federal funding occurs?• The recent federal transportation legislation (ISTEA) provides greaterflexibility in using transportation dollars. Other types of transitinvestments other than the current RTA plan could also be available forfederal funding that would have similar employment effects.Voters should also consider whether increasing employment is a properpolicy objective given that the region is currently near full employment. Thecover story in the August 21st, 1996 Journal American led with the followingtitle: “Area employers feel squeeze as jobless rate dips”. The current issuefor the local economy is not the lack of jobs but rather finding enoughqualified workers. The renewed strength of Boeing and the ongoing growthin the high technology sector present a very positive economic outlook forthe rest of the decade. While the RTA’s claimed contribution to regionalemployment is relatively small (less than 0.1%) it nonetheless comes at atime when the regional economy is growing at a healthy rate.

6.3. INCREASED COMMERCIAL ACTIVITYThe RTA lists the attraction of new businesses, the retention of existingbusinesses, and increases in tourism as benefits of the RTA. The contentionseems to be that the overall level of economic activity in the region will behigher with the plan than without it. This argument is plausible if the RTArepresents a truly cost-effective investment. If by shifting resources out ofprivate consumption and investment and into transportation capacity theregion will generate transportation benefits that substantially exceed thecosts, then the region will have added productive capacity that could raise theoverall level of economic activity. However, if the RTA plan fails the benefit-cost test, then it represents the diversion of resources into less productiveuses than would occur if these resources remained in the private economy.Our previous analysis showed that the RTA plan fails the strict benefit-costtest; thus the overall level of economic activity in the region is unlikely toincrease with the RTA plan.That is not to say that particular businesses in some geographic areas wouldnot do better with this investment. The rail connection from the Universityof Washington to downtown to the airport will indeed benefit the businessesand institutions close to the rail stations. However, other businesses will bemade slightly worse off as consumers have less money to spend due to theincrease in the sales tax and motor vehicle excise tax. Overall, the regionaleconomy will not perform better with this investment and may indeedperform slightly worse.

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Benefit -cost Analysis of RTA Plan

RTA supporters assert that the new transit system will attract more touriststo the region than would come without the new transit system, and thatthese new tourists will boost the local economy. It is difficult to evaluate thisassertion, although it seems unlikely that tourists visit a particular locationbecause of its transit system. If it is very easy for tourists to get around,then perhaps the region’s reputation as a tourist destination would increaseand we would have more visitors. The RTA plan may increase tourism but itis impossible to say by how much; and an alternative system (e.g., one aimedat linking tourist destinations) might also achieve the same objective.

6.4. AIR QUALITY BENEFITSThe automobile contributes a significant share of the airborne pollutants to the region. By getting some people to take transit instead of their cars, the RTA could lead to improved air quality. The current RTA plan is unlikely to have significant effects on regional air quality because of latent demand:when some people choose to get out of their cars and take the bus or thetrain to work, new auto drivers will take their place on the roadways. Anycapacity that is freed up on the highways will quickly be used by new drivers who will continue to emit air pollution.The Puget Sound Regional Council’s Metropolitan Transportation Plan (MTP) shows that in 2010 the peak period carbon monoxide levels are the nearlythe same with or without the RTA plan. Peak period carbon monoxideemissions are 347 metric tons daily with the baseline forecast and 344 metric tons daily with the action alternative that includes the RTA. In 2010, theRTA plan and the other improvements in the MTP change all categories ofpeak period emissions by less than 1%. Most of the improvements in future air quality will come from improvements in auto emissions technology rather than from people switching from cars to transit.

6.5. URBAN FORMMuch has been made of how the RTA’s plan will help the region achieve its growth management objectives. For many supporters this aspect of the plan is the most important. The RTA’s list of system benefits includes:• Reduction of sprawl• Increased connection between centers• Enhanced pedestrian environmentOne of the key issues for the public to consider is whether the RTA willindeed reduce urban sprawl. Unfortunately, there is no compelling evidencethat investments of the type contemplated by the RTA will tend towardssupporting higher residential densities; in fact, the opposite could occur. Ingeneral, investments in radial transportation capacity (from the center out tothe edges of the urban area) tend to increase sprawl. If it takes less time totravel from the periphery to downtown because of either road or transitimprovements, then more people will be willing to live farther away from theregion’s center.

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Benefit -cost Analysis of RTA Plan

To the extent that investments in HOV lanes and bus service reduce traveltimes for people living in the suburbs, then these investment may tend toencourage sprawl. This is especially the case with the addition of more park-and-ride capacity along the regional freeways. Park-and-rides allow peopleto live in traditional suburban densities and then drive their car to a transitstop that offers quick, reliable service to their ultimate destination.The region’s planners want to avoid this trend by developing regional centerswith higher densities that would provide origins and destinations for transittrips. However, the real estate market is largely driven by people’spreferences for housing and will usually not support the higher densitiesenvisioned in the region’s land-use plan. The study of land values near thefive California rail systems cited by the RTA summarizes its findings asfollows:The first policy conclusion is that the capitalized housing pricepremiums associated with BART access, as significant as they are, are not large enough to promote higher residential densities. Even in the best of cases, the market, left to its own devices, is unlikely togenerate significantly higher residential densities near transitstations. Supportive land-use policies--and in many locations,development subsidies or incentives--are necessary to support the development of higher-density housing at or near transit stations.(Landis, Guhathakurta and Zhang, 1994)As stated above in the Landis study, only two of the five rail systems had any effect on land-prices at all. Given the limited scope of the current RTA plan as a “starter rail line” it seems very unlikely that these transit investments will spur significant increases in density without other public policies tomotivate higher density.What this result means is that the RTA’s investment will provide very weak economic incentives for the kinds of development patterns that the region has adopted in its land-use plan. In fact, the increase in highway capacity with HOV lanes and park-and-ride lots may tend to increase sprawl beyond what would occur without those investments.

7 . CONCLUSION

This study used the analytic tool of benefit-cost analysis to evaluate the costeffectiveness of the RTA proposal. As Richard Zerbe and Dwight Divelywrite in their textbook on benefit-cost analysis, “Decisions are made bydecision makers, and benefit-cost analysis is properly regarded as an aid to decision-making and not the decision itself.” This report is intended toprovide additional information for voters to consider as they make their own individual decisions about the merits of the RTA proposal.

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